Britain's high street banks and the main consumer watchdog will today go to court to seek a test-case ruling aimed at resolving the uncertainty over "illegal" bank penalty charges.

A consumer revolt over allegedly unfair bank charges has gathered pace rapidly in recent months, with millions of people downloading complaint letters to send to their banks, local courts packed with customers demanding refunds, and some institutions warning that their profits may be hit as a result.

Now the two opposing sides in the debate have agreed to join forces to launch a test case designed to end the ambiguity and determine once and for all whether or not the charges are unfair.

The Office of Fair Trading said last night that it would commence proceedings today in the high court "for a declaration on the application of the law in respect of unauthorised overdraft charges".

It has entered into an agreement with eight leading current account providers - Abbey, Barclays, Clydesdale Bank, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland/NatWest and Nationwide - "to facilitate an orderly and timely resolution of the legal issues".

Hundreds of thousands of people have been demanding refunds of charges going back six years on the grounds that they bear no relation to the bank's costs and are illegal.

Banks have largely settled out of court rather than reveal the actual cost of overdrafts and bounced cheques. It is claimed that they raked in an estimated £4.7bn in unauthorised overdraft fees and interest charges last year.

But increasing numbers of consumers have decided to fight back. Banking complaints to the Financial Ombudsman Service (FOS) soared by 47% in the year ending March 31, and its consumer helpline has been receiving up to 3,000 inquiries a day about charges.

In many cases, the banks have been settling up with customers without too much fuss. In April, NatWest decided to pay a record £35,987 to one customer, a Norfolk businessman, rather than face him in court, where it would have had to justify its fees.

But there have also been several cases where county court judges have ruled in favour of the banks, which have muddied the waters.

"Tens of thousands of complaints that these charges are unfair have been received by the county courts and the FOS," said an OFT spokesman.

"The banks do not accept that the unfairness rules of the unfair terms in consumer contract regulations apply. The OFT believes that they do and is seeking to establish this legal principle clearly in the court."

He added that "a quick determination of this point of principle will assist in securing a clear and orderly resolution of the fairness of these charges".

The OFT said it would inevitably be a complex process, but the aim was that the full hearing would take place "as soon as reasonably practicable".

Angela Knight, chief executive of the British Bankers' Association, said that establishing legal clarity on the issue of bank charges was of paramount importance, not only for the banking industry, but for all customers now and in the future. "The banks have always been firmly of the view that the fees they charge customers are fair and clear," she added.

In the meantime, it has been agreed that decisions on all existing and future customer claims for refunds will be put on hold until the outcome of the case. However, any refund offers already made to customers will be honoured if they choose to accept.

Backstory

There has been a growing consumer rebellion over bank penalty charges, which have long been a major cause of annoyance for current account holders. One common objection to the charges is that their size can sometimes appear to bear little relation to the size of an overdraft.

Earlier this year it was rumoured that the Office of Fair Trading was planning to impose caps on bank charges but in March it said "a more detailed examination" was needed.

Campaigners have urged people to carry on claiming while the OFT looks into the matter. The watchdog has been trying to get to the bottom of claims that the real cost to banks of bouncing cheques, standing orders and direct debits may be less than £2, not the £25 to £39 typically charged.